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A Study on the Causes of Financial Crisis in the Indian Aviation Industry with Special Reference to – Kingfisher Airlines

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A Study on the Causes of Financial Crisis in the Indian Aviation Industry with Special Reference to – Kingfisher Airlines Journal of Management (JOM) Volume 7, Issue 1, January – February 2020, pp. 28–41, Article ID: JOM_07_01_005 Available online at http://www.iaeme.com/jom/issues.asp?JType=JOM&VType=7&IType=1 Journal Impact Factor (2020): 6.1633 (Calculated by GISI) www.jifactor.com ISSN Print: 2347-3940 and ISSN Online: 2347-3959 DOI: 10.34218/JOM.7.1.2020.005 © IAEME Publication A STUDY ON THE CAUSES OF FINANCIAL CRISIS IN THE INDIAN AVIATION INDUSTRY WITH SPECIAL REFERENCE TO – KINGFISHER AIRLINES Prof. Baisakhi Debnath Assistant Professor, Jain Deemed-to-be University, India Sushan A Shantharam Student, BBA, 5th Semester, Jain Deemed-to-be University, India Anmisha Reddy Dwarampudi Student, BBA, 5th Semester, Jain Deemed-to-be University, India Dasari Sri Vidya Student, BBA, 5th Semester, Jain Deemed-to-be University, India ABSTRACT India is a country where Air Travel in the early 90’s was a luxury, wherein the masses couldn’t even think of air travel the fares as it was very expensive. Even the Indian Aviation Industry wasn’t up to that standard of other countries when Mr. Naresh Goyal entered the aviation industry with his new baby Jet airways on 1st April 1992 to change the portrait of the industry as he had good knowledge of the working of the industry. Goyal was the person who changed the image of Indian Aviation industry in the global map by creating new routes he also gave prominence to his pilots, technicians & airhostess by giving them good pay package. He made the air fares reasonable in comparison to its competitors. Jet Airways has been through a lot of ups and downs in the process. In addition to Jet Airways, there were many airlines which could not perform well In the Indian Aviation Industry. Tata Airlines (now known as Air India), Sahara Airlines (later known as Jetlite), Kingfisher Airlines are to name a few. The present paper is trying to look into the root causes of the financial crisis of these airlines. Keywords: Aviation Industry, Financial Crisis, Airlines Cite this Article: Baisakhi Debnath, Sushan A Shantharam, Anmisha Reddy Dwarampudi and Dasari Sri Vidya, A Study on the Causes of Financial Crisis in the Indian Aviation Industry with Special Reference to – Kingfisher Airlines, Journal of Management (JOM), 7 (1), 2020, pp. 28–41. http://www.iaeme.com/JOM/issues.asp?JType=JOM&VType=7&IType=1 http://www.iaeme.com/JOM/index.asp 28 [email protected] A Study on the Causes of Financial Crisis in the Indian Aviation Industry with Special Reference to – Kingfisher Airlines 1. INTRODUCTION Joshi & Desai (2015) pointed out that the Airport Authority of India (AAI) manages in total 122 Airports in the country. It includes International Airports-11, domestic airports-94 and civil enclaves-28. 70% of the passenger traffic of which Delhi and Mumbai together account for 50% alone is handled by Top 5 airports in the country Passenger and cargo traffic has growth at an average of about 9% over the last 10 years. Over the years the skies of India have hosted numerous airlines however few have been able to sustain the rough weather. Jet Airways the latest among the lot hurled towards the crash faster than it was imagined. Jet had no cash and fuel which resulted in its winding up. The other sectors associated with the Aviation industry are making money with exception to the Airlines. Cab operators like Ola, Uber are doing well resulting into the government getting good money in form of taxes. In addition, the lease companies are charging hiked amount of rent on airport. The reasons for the non-performance of Airlines could attribute to certain reasons. 1.1. Debt The amount of debt the Aviation industry is surmountable. According to livemint (2014) the industry has a debt of 15.83 billion. Knigfisher Airlines alone has a debt of about $ 210 million roughly around INR 14,578 million and Jetairways has a debt of about INR 15,000 Crore, and Air India has a Debt of INR 58,351 Crores to mention a few. Some of the significant causes for the non-performance and failure of Airlines in India are Mis-management, stringent aviation rules, FDI (Foreign Direct Investment) rules and regulations, high aviation turbine fuel prices, rupee depreciation, excessive parking and landing charges, pilot crunch, aircraft rentals, and higher import duty on aviation turbine fuel. Australian aviation consultancy CAPA (Center for Asia Pacific Aviation) forecasts that Indian carriers will lose a collective $550 million to$700 million in the financial year 2020 as compared to an estimated $1.7 billion loss for the 2019 year ending in March). The existing infrastructure is unable to support the ambitious expansion plans of the various airlines and even the county owned Air India was kept for sale for a number of times but sadly it could not attract any buyers. Despite the number of travellers has gone up many fold over the years, still the airlines are not able to make profit. Experts often say that a countries development is based on the improvement of the aviation and the telecom industry. The image of India’s aviation and telecom industries has one thing in common - the amount of debts both the sectors are into. The primary reason why these two sectors are failing in India can be attributed to the multiple instances of regulations changing to favour particular companies namely Jio getting a free hand at launch and opening up FDI for Jet-Etihad deal are a few examples which conform to the fact. In addition, the government treats the two sectors as cash cows like the Spectrum sale of 2016 bringing in more than Rs 65,000 crore as revenue and aviation turbine fuel being highly taxed and the most expensive in Asia making these two sectors highly unstable in terms of growth. The government at present has opened the sale of the part of debt laden Air India to foreign airline. The government has moved about Rs. 30,000 crore of Air India’s debt to as a separate holding company leaving the airline with roughly another Rs. 30,000 crore of debt according to the sources 2. LITERATURE REVIEW 1. Kumudha & Bhunia (2016) in their study pointed out the paradigm shift of the in the mindset of the Indian travellers in choosing air travel as compared to other mode of travel with the change in aviation policies of the government along with the rise in air travel of India to http://www.iaeme.com/JOM/index.asp 29 [email protected] Baisakhi Debnath, Sushan A Shantharam, Anmisha Reddy Dwarampudi and Dasari Sri Vidya global standards. They analysed the expectations, satisfaction levels and perceptions of the customers and pointed out the need of improving customer relationship in retention of customers and improving customer loyalty. They pointed out the effectiveness of the customer relationship marketing activities practiced by the airline companies where the analysis showed that Kingfisher airline passengers were overjoyed and Jet airways passengers were satisfied. 2. Ravi (2016) in his paper spoke about the recurrence of corporate frauds and failure of corporate governance in India with reference to the failure of Kingfisher Airlines. He mentioned that about the corporate legal framework of India on paper which could be considered to be the level of US Surbanes-Oxley Act. It has been found that collectively the non-productive assets of Indian public banks have been estimated at $120 billion in 2016. This is not possible in developed countries and many developing countries and a host of factors like political nepotism, outright corruption facilitated many questionable practices of Indian Banking sector. It has been found that in KFA case also the blame game has begun between ruling party and opposition parties. Banks blame political influence and politicians blamed the banks for lack of due diligence. The issue is complicated by the fact that many CEO appointments in banks are normally political appointments. Market watch dogs kept changing the policies, for example SEBI’s change of policy of conversion of debt to equity by banks at premium resulted in lending banks paying 61% premium to KFA. 3. Srivastava (2016), in the research critically analysed the factors that lead to the down fall of the various airlines with major reference to kingfisher which pointed out the kingfisher lacked strategy for long terms by collaborating with Air Deccan, other reasons could be non- appointment of CEO for a longer period of time, multiple hopping destinations with non- profitable routes resulting in delays. In addition to that, in the financial front they were always at the back-foot with higher cost of training, high cost of maintenance, delayed salary to the employees, government dues and a hefty operating cost primarily on account of steep depreciation of Indian Rupee coupled with higher fuel costs which resulted in high accumulative losses. 4. Choudhuri, Dixit & Tiwari (2015) in their paper broadly discussed about the issues and challenges faced by aviation industry in India and pointed the various loan defaulters in aviation industry. The researchers have made a study on various airlines and their financial non- performance which includes Spice Jet: The company had a debt of 1738 crore. The reports attributed the failure of the company to depositing tax deducted in employee’s salary and that the employees were also not provided form16. The report also stated that a promoter Mr. Maran was planning to transfer 53.48 % stake in airlines. The company denied any such part of his stake. Sanjiv Kapoor, COO of the company wrote to the employees “Spice Jet is no Kingfisher” to contradict such news articles (Narasimhan, 2014).
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